Hong Kong Dollar Drops to Lowest Since Band Implemented in 2005

(Bloomberg) -- Hong Kong’s currency depreciated to the weakest level since the government widened a trading band against the greenback in 2005, putting pressure on the monetary authorities to slow its downward trajectory.

The exchange rate dropped to HK$7.8315 per dollar on Friday, approaching the weak end of its trading band. The Hong Kong dollar has slumped 0.9 percent over the past 12 months as low lending costs in the city make it lucrative to borrow the currency to buy the U.S. dollar.

The slump is a test for the city’s de-facto central bank, which will be compelled to intervene should the currency weaken to 7.85 per U.S. dollar. While additional bill sales last year helped support the currency, the Hong Kong Monetary Authority said in December it had no plans to take such a move. Interbank lending rates in Hong Kong are the lowest since 2008 versus those in America.

To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net.

To contact the editor responsible for this story: Richard Frost at rfrost4@bloomberg.net.

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